Regulation

Former SEC Official Criticizes Wells Notice Against Immutable

Published

2 months ago

November 2, 2024

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Former SEC official Marc Fagel has voiced concerns over the Securities and Exchange Commission’s recent issuance of a Wells Notice to Immutable, an Ethereum-based Web3 gaming company. Immutable claims that the Wells Notice arrived with limited prior communication or explanation, marking a sharp departure from what is typically a more extensive investigative process.

Fagel commented that it is unusual for the SEC to issue such notices without first conducting a thorough investigation, suggesting that this approach could be “risky.”

Former SEC Official Questions Rapid Wells Notice Issued to Immutable

Immutable announced it had received a sudden Wells Notice from the U.S. Securities and Exchange Commission (SEC). The notice, which serves as a formal alert for potential enforcement action, cited alleged securities law violations related to private IMX token sales in 2021. However, the specifics of these alleged violations were minimally detailed in the notice, sparking questions about the SEC’s procedural approach.

Former SEC Official Marc Fagel commented on the surprise issuance, noting that it’s uncommon for the agency to send such a notice without preliminary investigation. In typical cases, companies expect several months of interviews or exchanges before receiving a Wells Notice, and Fagel stated that deviating from this standard practice could be seen as “risky.”

In a heated discussion on the X platform, the former SEC official added,

“BTW, it’s hard to believe the SEC would Wells without conducting sufficient investigation to support the claims; way too risky outside the TRO scenario. That said, I’ve heard plenty of anecdotes about the crypto unit dropping a Wells out of the blue, which is kinda scuzzy.”

Wells Notice Reflects SEC’s “Regulation by Enforcement” Strategy

The crypto sector has witnessed similar actions, with companies such as Coinbase, Consensys, and Crypto.com also receiving Wells Notices. The sudden notice aligns with a broader trend criticized as “regulation by enforcement.” Here, the agency proceeds with legal action rather than establishing clear compliance guidelines.

Immutable pointed out that its interaction with the SEC was exceptionally brief before the Wells Notice was issued. More so, they noted that it lacked meaningful explanation, containing fewer than 20 words specifying the alleged securities violations.

The Securities and Exchange Commission approach has caused considerable frustration within the crypto community. Fagel highlighted that the SEC’s surprising strategy of issuing Wells Notices abruptly in the crypto sector has become increasingly common.

ConsenSys Responds to SEC Claims on MetaMask

In parallel, blockchain company ConsenSys recently filed a response to the SEC’s claims regarding alleged securities violations by MetaMask. ConsenSys disputed the allegations, stating that MetaMask’s product embodies essential blockchain principles. It allows users to interact in a decentralized way. The company also reinforced its commitment to defending its product and technology within the legal framework.

Notably, under SEC Chair Gary Gensler, crypto firms have reported heightened compliance burdens. Regulatory enforcement actions have cost the industry an estimated $400 million, according to the Blockchain Association. These reports aligns with what the former SEC official, Marc Fagel, terms as “scuzzy”.